London, 13 February 2012 -- As anticipated in November 2011,
Moody's Investors Service has today adjusted the sovereign debt
ratings of selected EU countries in order to reflect their
susceptibility to the growing financial and macroeconomic risks
emanating from the euro area crisis and how these risks
exacerbate the affected countries' own specific challenges.

Moody's actions can be summarised as follows:

- Austria: outlook on Aaa rating changed to negative

- France: outlook on Aaa rating changed to negative

- Italy: downgraded to A3 from A2, negative outlook

- Malta: downgraded to A3 from A2, negative outlook

- Portugal: downgraded to Ba3 from Ba2, negative outlook

- Slovakia: downgraded to A2 from A1, negative outlook

- Slovenia: downgraded to A2 from A1, negative outlook

- Spain: downgraded to A3 from A1, negative outlook

- United Kingdom: outlook on Aaa rating changed to negative

Please see the individual country specific statements below for
more detailed information relating to the rating rationale and
the sensitivity analysis for each affected sovereign issuer.

The implications of these actions for directly and indirectly
related ratings will be reported through separate press releases.

The main drivers of today's actions are:

- The uncertainty over (i) the euro area's prospects for
institutional reform of its fiscal and economic framework and
(ii) the resources that will be made available to deal with the
crisis.

- Europe's increasingly weak macroeconomic prospects, which
threaten the implementation of domestic austerity programmes and
the structural reforms that are needed to promote
competitiveness.

- The impact that Moody's believes these factors will continue to
have on market confidence, which is likely to remain fragile,
with a high potential for further shocks to funding conditions
for stressed sovereigns and banks.

To a varying degree, these factors are constraining the
creditworthiness of all European sovereigns and exacerbating the
susceptibility of a number of sovereigns to particular financial
and macroeconomic exposures.

Moody's has reflected these constraints and exposures in its
decision to downgrade the government bond ratings of Italy,
Malta, Portugal, Slovakia, Slovenia and Spain as listed above.
The outlook on the ratings of these countries remains negative
given the continuing uncertainty over financing conditions over
the next few quarters and its corresponding impact on
creditworthiness.

In addition, these constraints have also prompted Moody's to
change to negative the outlooks on the Aaa ratings of Austria,
France and the United Kingdom. The negative outlooks reflect the
presence of a number of specific credit pressures that would
exacerbate the susceptibility of these sovereigns' balance
sheets, and of their ongoing austerity programmes, to any further
deterioration in European economic conditions and financial
landscape.

An important factor limiting the magnitude of Moody's rating
adjustments is the European authorities' commitment to preserving
the monetary union and implementing whatever reforms are needed
to restore market confidence. These rating actions therefore take
into account the steps taken by euro area policymakers in
agreeing to a framework to improve fiscal planning and control
and measures adopted to stem the risk of contagion.

The rating agency considers the ratings of the following European
sovereigns to be appropriately positioned, namely Denmark (Aaa),
Finland (Aaa), Germany (Aaa), Luxembourg (Aaa), Netherlands
(Aaa), Sweden (Aaa), Belgium (Aa3), Estonia (A1) and Ireland
(Ba1). Moody's review of Cyprus' Baa3 rating, as announced in
November 2011, is ongoing, while the developing outlook on
Greece's Ca rating remains appropriate as the rating agency
awaits clarification on the country's debt restructuring.

As for Central and Eastern European sovereigns outside the euro
area, Moody's will be assessing the credit implications of the
fragile financial market conditions and weak macroeconomic
outlook during the first half of this year.

In related rating actions, Moody's has today also downgraded the
rating of Malta Freeport Co. to A3 from A2, and that of Spain's
Fondo de Reestructuración Ordenada Bancaria (FROB) to A3 from A1.
Both of these issuers are government-guaranteed entities and
therefore have a negative outlook in line with the outlook on
their respective sovereign. Moody's has today also changed the
outlook on the Aaa debt rating of the Bank of England to negative, in parallel
with its decision to change the outlook on the UK's sovereign
rating. Similarly, Moody's has changed to negative the outlook on
the Aaa debt ratings of the Société de Financement de l'Economie
Française (SFEF) and the Société de Prise de Participation de
l'Etat (SPPE) in line with the change of outlook on France's
sovereign rating.

The principal methodology used in these ratings was Sovereign
Bond Ratings Methodology published in September 2008. Please see
the Credit Policy page on www.moodys.com for a copy of this
methodology.

Moody's changes the outlook on Austria's Aaa rating to negative

Moody's Investors Service has today changed the outlook on the
Aaa rating of the Republic of Austria to negative from stable.
Concurrently, Moody's has affirmed Austria's short-term debt
rating of Prime-1.

The key drivers of today's action on Austria are:

1.) The uncertainty over the prospects for institutional reform
in the euro area and the weak macroeconomic outlook across the
region, which will continue to weigh on already fragile market
confidence.

2.) The balance sheet of the Austrian government is exposed to
larger contingent liabilities than is the case for other
Aaa-rated sovereigns in the EU, mainly on account of the
relatively large size of Austria's banking sector, its
substantial exposure to the more volatile economies in Central
and Eastern Europe and the reliance of the banks on wholesale
funding markets. The stand-alone credit strength of the Austrian
banking sector is low for a Aaa-rated sovereign.

3.) While the concerns over the banking sector are not new,
Austria's debt metrics are weaker today than they were in
2008-2009, the last time that the Austrian government provided
support to its banks. The Austrian government's debt metrics are
also weaker than some of those of other Aaa-rated peers.

RATIONALE FOR NEGATIVE OUTLOOK

As indicated in the introduction of this press release, a
contributing factor underlying Moody's decision to change the
outlook on Austria's Aaa bond rating to negative is the
uncertainty over the euro area's prospects for institutional
reform of its fiscal and economic framework and over the
resources that will be made available to deal with the crisis.
Moreover, Europe's weak macroeconomic prospects complicate the
implementation of domestic austerity programmes and the
structural reforms that are needed to promote competitiveness.
Moody's believes that these factors will continue to weigh on
market confidence, which is likely to remain fragile, with a high
potential for further shocks to funding conditions for stressed
sovereigns and banks.

While constraining the creditworthiness of all European
sovereigns, the fragile financial environment increases Austria's
susceptibility to financial shocks. Moody's decision to change
the outlook to negative reflects the large contingent liabilities
to which the Austrian sovereign is exposed, given the relatively
large size of its banking sector and in particular its exposure
to the Central, Eastern and South-Eastern European (CESEE)
region. According to the Austrian banking regulator FMA, total
consolidated assets of Austria's banks amounted to 390% of
Austria's GDP in Q3 2011 and their exposure to the CESEE region
remains elevated at EUR225 billion, or 75% of GDP, as of
September 2011 (see OeNB Financial Stability Report, December
2011). Moody's notes that the stand-alone credit strength of the
Austrian banking sector is low compared with the banking sectors
of other Aaa-rated sovereigns.

The decision to assign a negative outlook mainly reflects Moody's
lower "tolerance" for high levels of contingent liabilities at
the very high end of the rating spectrum, rather than concerns
over a further increase in the government's potential exposure.
Austrian banks' capitalisation levels are lower than they are in
other Aaa-rated countries, and their business models continue to
exhibit higher risks than those of banks in most of Austria's
peers. This was acknowledged by Austria's central bank in its
latest Financial Stability Report (published in December 2011).

Moody's acknowledges the active attempts by the Austrian banking
regulator to reduce the country's exposure by requiring the
Austrian banks that operate in the region to reduce the funding
mismatch that is prevalent in some of the countries. However, we
believe that this reduction will most likely happen only
gradually over the next few years. In the meantime, a potential
further downturn in the CESEE region (for example, from contagion
from a further deterioration of economic and financial conditions
in the euro area) could generate considerably higher capital and
funding support needs, which Moody's would deem to be
incompatible with the Austrian government maintaining its Aaa
rating.

The third factor underpinning the outlook change is Austria's
weakened public debt metrics compared with some of the other
Aaa-rated peers. Austria's debt metrics are not as strong as they
were in 2008/09, the last time that the Austrian government
provided support to its banks. Austria's public debt ratio stood
at around 75% of GDP in 2011, which is significantly above the
median debt ratio for all Aaa-rated sovereigns of around 52% of
GDP. This estimate includes the full debt of the
government-related issuer OeBB Infrastruktur (EUR17 billion as of
end-2011). Even under base case assumptions, Moody's expects
Austria's debt ratio to rise to around 80% of GDP in 2013, an
increase of 20 percentage points compared to 2007, and to decline
only gradually thereafter.

The upward trajectory of Austria's outstanding debt places it
amongst the most heavily indebted of its Aaa-rated peers,
alongside the United States, France and the United Kingdom whose
Aaa ratings also carry a negative outlook.

RATIONALE FOR UNCHANGED Aaa RATING

Austria's Aaa rating is supported by the country's strong,
diversified economy with no major private sector or external
imbalances to correct. Growth performance has been strong by
comparison with other European economies, unemployment is low,
the current account has been in surplus since 2002 and the
leverage of the private sector is moderate. Austria has a good
track record of achieving and maintaining low budget deficits,
recording a budgetary shortfall of above 2.5% of GDP only once in
the period of 1997 to 2009. The deficit outturn in 2011 was
better than budgeted, with a deficit of 3.3% of GDP (versus an
expected 3.9% budget shortfall) due to much stronger revenue
growth and very strict monitoring of spending. This compares
favourably with the budgetary performance of some of the other
Aaa-rated peers. However, given the expected slowdown in growth
across the euro area in 2012, Moody's is not expecting the
Austrian government to make any material progress in reducing the
fiscal deficit, which will in turn keep the debt ratio on an
upward trajectory. Moody's acknowledges the government's recently
presented fiscal consolidation package which aims to bring the
budget deficit to zero by 2016. While the accelerated fiscal
consolidation is welcome, Moody's notes that Austria's debt ratio
will remain above 70% of GDP in 2016, even assuming full
implementation of all the proposed measures.

The Austrian government's bond rating could potentially be
downgraded to Aa1 if further material government support were
needed to support the country's banking sector. A sharp
intensification of the euro area crisis and further deterioration
of macroeconomic conditions in Europe, leading to material fiscal
and debt slippage in Austria, could also pressure the rating.

Conversely, the outlook on the sovereign Aaa rating could be
returned to stable if government contingent liabilities were
materially reduced, for example, by a further significant
strengthening of the banking sector's capital base through
private sector capital or organic capital growth, so as to remove
any doubt about the need for future public sector support.

Moody's changes the outlook on France's Aaa rating to negative

Moody's Investors Service has today changed the outlook on the
Aaa rating of France's local- and foreign-currency government
debt to negative from stable.

The key drivers of today's outlook change on France are:

1.) The uncertainty over the prospects for institutional reform
in the euro area and the weak macroeconomic outlook across the
region, which will continue to weigh on already fragile market
confidence.

2.) The ongoing deterioration in France's government debt
metrics, which are now among the weakest of France's Aaa-rated
peers.

3.) The significant risks to the French government's ability to
achieve its fiscal consolidation targets, which could be further
complicated by a need to support other European sovereigns or its
own banking system.

Concurrently, Moody's has today also changed to negative the
outlook on the Aaa debt ratings of the Société de Financement de
l'Economie Française (SFEF) and the Société de Prise de
Participation de l'Etat (SPPE) in line with the change of outlook
on France's sovereign rating.

RATIONALE FOR NEGATIVE OUTLOOK

As indicated in the introduction of this press release, a
contributing factor underlying Moody's decision to change the
outlook on France's Aaa government bond rating to negative is the
uncertainty over the euro area's prospects for institutional
reform of its fiscal and economic framework and over the
resources that will be made available to deal with the crisis.
Moreover, Europe's weak macroeconomic prospects complicate the
implementation of domestic austerity programmes and the
structural reforms that are needed to promote competitiveness.
Moody's believes that these factors will continue to weigh on
market confidence, which is likely to remain fragile, with a high
potential for further shocks to funding conditions. In addition
to constraining the creditworthiness of all European sovereigns,
the fragile financial environment increases France's
susceptibility to financial and macroeconomic shocks given the
concerns identified below.

The second driver underpinning the negative outlook is the
ongoing deterioration in France's government debt metrics, which
are now among the weakest of France's Aaa peers. France's primary
balance is in deficit and compares unfavourably with other
Aaa-rated countries with a stable outlook. The upward trajectory
of France's outstanding debt over the decade preceding the
crisis, at a time when most other governments were reducing their
debt ratios, places it amongst the most heavily indebted of its
Aaa-rated peers, alongside the United States and the United
Kingdom whose Aaa ratings also carry a negative outlook. France's
capacity to support higher government debt levels is also
complicated by the limitations of operating without the advantage
of being the single "risk-free" issuer of debt denominated in its
currency.

The third driver of today's announced action is the significant
risk attached to the government's medium-term ability to
implement consolidation targets and achieve a stabilisation and
reversal in its public debt trajectory. While the rating agency
acknowledges the French government's efforts to implement
important economic and fiscal reforms since 2008, and meet fiscal
targets over the past two years, the agency notes that France's
prior reluctance to decisively reform and consolidate have left
its finances in a challenging position amid an ongoing global
financial and euro area debt crisis. Stabilising, and ultimately
reducing, France's stock of outstanding debt will be contingent
on the French government maintaining its fiscal consolidation
effort. Meanwhile, the fragile financial market environment,
which will endure for many months to come, constrains the French
government's room to manoeuvre in terms of stretching its balance
sheet in the face of further direct challenges to its finances --
for example, from the possible need to provide support to other
European sovereigns or to its own banking system, both of which
would further complicate its own fiscal consolidation process.

RATIONALE FOR UNCHANGED Aaa RATING

France's Aaa rating is supported by the economy's large size,
high productivity and broad diversification, together with high
private sector savings and relatively moderate household and
corporate liabilities. This provides considerable capacity to
absorb shocks, as demonstrated by the resilience of domestic
demand during the 2008-2009 global crisis. The ability of the
French government to finance its very high debt level at
affordable interest rates in an uncertain financial and economic
environment will be crucial to it retaining its Aaa rating.

WHAT COULD MOVE THE RATING DOWN

Moody's would downgrade France's government debt rating in the
event of an unsuccessful implementation of economic and fiscal
policy measures, leading to failure of the government's attempt
to stabilise and reverse the high public debt ratio, generating a
further weakening of the debt metrics against peers and further
reducing France's resiliency to potential economic and financial
shocks. A material increase in exposure to contingent liabilities
from the national banking system or a requirement for further
support to neighbouring euro area member states if the euro area
crisis were to intensify could also prompt a rating downgrade.

A return to a stable outlook on France's sovereign rating would
require significant progress towards improving the debt metrics
and an easing of the euro area sovereign crisis given Moody's
concerns regarding the country's exposure to contingent
liabilities.

Moody's Investors Service has today downgraded the Italian
government's local- and foreign-currency debt rating to A3 from
A2. The outlook remains negative. Concurrently, Moody's has
downgraded the country's short-term rating to Prime-2 from
Prime-1.

The key drivers of today's rating action on Italy are:

1.) The uncertainty over the prospects for institutional reform
in the euro area and the weak macroeconomic outlook across the
region, which will continue to weigh on already fragile market
confidence.

2.) The challenges facing Italy's public finances, especially its
large stock of debt and high cost of funding, as well as the
country's deteriorating macroeconomic outlook.

3.) The significant risk that Italy's government may not achieve
its consolidation targets and address its public debt given the
country's pronounced structural economic weakness.

Moody's is maintaining a negative outlook on Italy's sovereign
rating to reflect the potential for a further decline in economic
and financing conditions as a result of a deterioration in the
euro area debt crisis.

RATIONALE FOR DOWNGRADE

As indicated in the introduction of this press release, a
contributing factor underlying Moody's one-notch downgrade of
Italy's government bond rating is the uncertainty over the euro
area's prospects for institutional reform of its fiscal and
economic framework and over the resources that will be made
available to deal with the crisis. Moreover, Europe's weak
macroeconomic prospects complicate the implementation of domestic
austerity programmes and the structural reforms that are needed
to promote competitiveness. Moody's believes that these factors
will continue to weigh on market confidence, which is likely to
remain fragile, with a high potential for further shocks to
funding conditions. In addition to constraining the
creditworthiness of all European sovereigns, the fragile
financial environment increases Italy's susceptibility to
financial and macroeconomic shocks given the concerns identified
below.

The deteriorating macroeconomic environment is in turn
exacerbating a number of Italy's own challenges that are weighing
on its creditworthiness and constitute the second driver of
Moody's one-notch downgrade of Italy's bond rating. The multiple
structural measures introduced by the government to promote
economic growth will take time to yield results, which are
difficult to predict at this stage. Moreover, the recent
volatility in funding conditions for the Italian sovereign
remains a risk factor that needs to be reflected in the
government bond rating. Overall, the combination of a large debt
stock (equivalent to 120% of GDP) and low medium-term economic
growth prospects makes Italy susceptible to volatility in market
sentiment that results in increased debt-servicing costs.

The third driver of today's rating action is the significant risk
that the Italian government may not achieve its consolidation
targets and prove unable to reduce the large stock of outstanding
public debt. Moody's acknowledges that the new Italian
government's fiscal consolidation and economic reform efforts
have helped to maintain a primary surplus. The government has
targeted primary surpluses in excess of 5% in the coming years.
However, in an environment of pronounced regional economic
weakness, the Italian government faces considerable challenges in
generating the high primary surpluses required to compensate for
higher interest payments and ultimately reduce its outstanding
public debt.

These credit pressures have intensified and become more apparent
in the period since Moody's last rating action on Italy in
September 2011, and are contributing to the need to reposition
Italy's rating at the lower end of the 'A' range.

The decision to downgrade Italy's debt rating also reflects
Moody's view that Italy's credit fundamentals and vulnerabilities
due to its high debt burden are difficult to reconcile with a
rating above the lower end of the "single-A" rating category.
Indeed, peers at the top of the single-A
category (like the Czech Republic and South Korea) as well as
those in the middle of the category (like Poland), do not face
Italy's high debt and structural growth challenges.

WHAT COULD MOVE THE RATING UP/DOWN

Italy's government debt rating could be downgraded further in the
event of evidence of persistent economic weakness, reform
implementation difficulties, or increased political uncertainty,
which translate into a significant postponement of Italy's fiscal
consolidation and reversal of the public debt trajectory. A
substantial and ongoing deterioration of medium-term funding
conditions for Italy due to further substantial domestic economic
and financial shocks from the euro area crisis would also be
credit-negative. Moreover, Italy's sovereign rating could
transition to substantially lower rating levels if the country's
access to the public debt markets were to be constrained and the
long-term availability of external sources of liquidity support
were to remain uncertain.

Conversely, a successful implementation of economic reform and
fiscal measures that effectively strengthen the Italian economy's
growth pattern and the government's balance sheet would be
credit-positive and could stabilise the outlook. Upward pressure
on Italy's rating could develop if the government's public
finances were to become less vulnerable to volatile funding
conditions, further to a reversal of the upward trajectory in
public debt and, ultimately, the achievement of substantially
lower debt levels.

Moody's Investors Service has today downgraded Malta's government
bond rating to A3 from A2. The outlook remains negative.

The key drivers of today's rating action on Malta are:

1.) The uncertainty over the prospects for institutional reform
in the euro area and the weak macroeconomic outlook across the
region, which will continue to weigh on already fragile market
confidence.

2.) Malta's relatively weak debt metrics compared with 'A'
category peers and the country's reliance on the strength of the
European economy, which will dampen its own growth prospects in
the medium term and worsen its debt dynamics.

Moody's is maintaining a negative outlook on Malta's sovereign
rating to reflect the potential for a further decline in economic
and financing conditions as a result of a deterioration in the
euro area debt crisis.

In a related rating action, Moody's has today also downgraded the
foreign- and local-currency debt ratings of Malta Freeport Co. to
A3 from A2 given its status as a government-guaranteed entity.
The outlook remains negative in line with the sovereign rating.

RATIONALE FOR DOWNGRADE

As indicated in the introduction of this press release, a
contributing factor underlying Moody's one-notch downgrade of
Malta's government bond rating is the uncertainty over the euro
area's prospects for institutional reform of its fiscal and
economic framework and over the resources that will be made
available to deal with the crisis. Moreover, Europe's weak
macroeconomic prospects complicate the implementation of domestic
austerity programmes and the structural reforms that are needed
to promote competitiveness. Moody's believes that these factors
will continue to weigh on market confidence, which is likely to
remain fragile, with a high potential for further shocks to
funding conditions. In addition to constraining the
creditworthiness of all European sovereigns, the fragile
financial environment increases Malta's susceptibility to
financial and macroeconomic shocks given the concerns identified
below.

The fragile external environment is exacerbating a number of
Malta's own challenges which continue to weigh negatively on the
country's debt rating and constitute the second driver of Moody's
downgrade. Malta's debt metrics are among the weaker of the
'A'-rated sovereigns. Growth prospects over the medium term also
appear poorer for Malta than for its peers, given the country's
dependence on tourism from the euro area as its main source of
economic growth. This will hinder the narrowing of the fiscal
imbalance. Lower business confidence and tighter credit
conditions are likely to result in weak private-sector
investment, and real output growth is likely to be significantly
lower than the government's forecast of over 2%. The
deteriorating growth prospects and the concomitant impact on
already weak debt dynamics will further reduce government
financial strength and expose it to more constrained, higher-cost
funding conditions.

WHAT COULD MOVE THE RATING UP/DOWN

Downward pressure on the rating could develop if Malta's economic
growth prospects deteriorate significantly, thereby obstructing
fiscal consolidation and leading to a significant further
deterioration in the sovereign's key credit metrics. The rating
could also be downgraded if an intensification of the euro area
crisis were to result in materially higher cost or constrained
funding conditions for the government. A further deterioration of
macroeconomic conditions in Europe, leading to material fiscal
and debt slippage in Malta, could also pressure the rating.

Conversely, the negative outlook on Malta's sovereign rating
would be changed to stable in the event of a sustained
improvement in investor sentiment across the euro area. Although
unlikely in the foreseeable future, the government's ratings
could move upward in the event of a significant improvement in
the government's balance sheet, leading to greater convergence
with 'A' category medians. Substantial structural reforms focused
on enhancing competitiveness and boosting potential output growth
rates would also be credit-positive.

Moody's Investors Service has today downgraded the government of
Portugal's long-term debt ratings to Ba3 from Ba2. The outlook
remains negative.

The key drivers of today's rating action on Portugal are:

1.) The uncertainty over the prospects for institutional reform
in the euro area and the weak macroeconomic outlook across the
region, which will continue to weigh on already fragile market
confidence.

2.) The resulting potential for a deeper and longer economic
contraction in Portugal than previously anticipated, and the
ongoing deleveraging process in the country's economy and banking
system.

3.) The higher-than-expected general government debt ratios,
which are due to reach roughly 115% of GDP within the next two
years, thereby significantly limiting the room for fiscal
manoeuvre and commensurately reducing the likelihood of achieving
a declining debt trajectory.

4.) Potential contagion emanating from the impending Greek
default, which is likely to extend the period during which
Portugal is unable to access long-term private markets once the
current support programme expires.

Moody's is maintaining a negative outlook on Portugal's sovereign
rating to reflect the potential for a further decline in economic
and financing conditions as a result of a deterioration in the
euro area debt crisis.

RATIONALE FOR DOWNGRADE

As indicated in the introduction of this press release, a
contributing factor underlying Moody's one-notch downgrade of
Portugal's government bond rating is the uncertainty over the
euro area's prospects for institutional reform of its fiscal and
economic framework and over the resources that will be made
available to deal with the crisis. Moreover, Europe's weak
macroeconomic prospects complicate the implementation of domestic
austerity programmes and the structural reforms that are needed
to promote competitiveness. Moody's believes that these factors
will continue to weigh on market confidence, which is likely to
remain fragile. This will in turn mean a high potential for
further shocks to funding conditions, which will affect weaker
sovereigns like Portugal first, increasing its susceptibility to
other financial and macroeconomic shocks given the concerns
identified below.

This backdrop is exacerbating Portugal's domestic challenges and
informs the second driver of Moody's rating action, which is the
weakening outlook for the country's economic growth prospects and
the implications for the government's efforts to place its debt
on a sustainable footing. Moody's expects the Portuguese economy
to contract by more than 3% in 2012 given the multitude of
downside risks from the region, including the impact of the
ongoing deleveraging in the financial and private sector as well
as the immediate impact of the government's austerity measures.
The unemployment rate is likely to remain high and nominal wages
will remain under pressure due to cutbacks in public-sector
bonuses and staff levels, thus depressing domestic demand.
Moreover, Moody's expectation of a slowdown among Portugal's main
trading partners in 2012 will undermine the contribution from net
exports, the only driver of GDP growth since the 2009 recession.
Lastly, the macroeconomic impact of the targeted fiscal
tightening in 2012 is programmed to be as intense as that of
2011, further subduing domestic growth prospects.

The third driver for the downgrade of Portugal's sovereign rating
is the unfavourable revision of the forecast for government debt
metrics, which are now projected to rise to around 115% of GDP or
higher before stabilising. This greater-than-anticipated level is
a consequence of the government's assumption of debt from
state-owned enterprises and regional governments in 2008, 2009
and 2010, as well as the expectation that the government will
need to draw the EUR12 billion bank recapitalisation package that
is part of the IMF/EU program. At these levels, the government
has very little room to manoeuvre in the event of further
economic, financial or political shocks originating from either
domestic or external sources. Moreover, in a low-growth
environment, higher initial debt levels will further complicate
the government's deleveraging efforts, especially since debt
affordability (i.e. the cost of servicing the debt as a share of
government revenues) is likely to remain more onerous than
previously estimated.

The fourth driver of today's rating action is Moody's view that
the increasing likelihood of a disorderly default by Greece (if
it fails to gain the required level of support of investors for
the proposed restructuring terms, or further financial assistance
from official-sector supporters) will very likely make Portugal
unable to access long-term market funding in September 2013 as
planned, and increase pressure on the government to seek a debt
restructuring. Moody's believes that there is a high risk of
contagion from Greece among weaker euro area sovereigns in
particular. While unfavourable market perceptions will not affect
Portugal's access to long-term official-sector funding under its
International Monetary Fund/European Union support programme
until at least 2014, and probably beyond, Moody's notes that
access to official-sector funding is not a guarantee of support
from private-sector creditors. Moreover, the longer
official-sector support is needed, the greater the pressure for a
restructuring of Portugal's private-sector debt becomes.

While risks remain weighted to the downside, there are several
reasons why Moody's downgrade of Portugal's government debt
rating is limited to one notch. The first is the government's
success in exceeding fiscal targets, as set out in its
IMF/EU-supported economic adjustment programme. This was possible
despite the initial significant divergence in the government
deficit from these targets in the first half of 2011, additional
setbacks such as assuming the debt and debt-servicing obligations
of some state-owned enterprises under recent EU accounting rules,
as well as EUR1.1 billion in previously unreported debt stemming
from the autonomous region of Madeira. These setbacks were partly
overcome with the help of the one-off transfer of pension assets
worth 3.5% of GDP from the big four commercial banks to the
central government, which facilitated a total reduction in
Portugal's nominal general government deficit by nearly 6% of GDP
in 2011.

The second reason for the limited rating adjustment is Moody's
expectation that the Portuguese government will have achieved a
structural budget correction in 2011 equivalent to around 4% of
GDP, which the IMF estimates to be the largest such adjustment in
Europe in 2011. A third reason is that, in 2011, the Portuguese
government also began to design and implement a set of further
structural reforms intended to bolster the economy's potential
growth rate. The Portuguese government, unlike that of Greece,
has managed to secure the cooperation of a large segment of the
labour force for these reforms.

WHAT COULD MOVE THE RATING UP/DOWN

The rating could be further downgraded if the government's
deficits are not kept sufficiently low to place the debt ratios
on a clear downward path within the next three years, or if the
government fails to meet its fiscal targets or fails to implement
its planned structural reforms. An intensification of the euro
area crisis and further deterioration of macroeconomic and
financial market conditions in Europe, leading to material fiscal
and debt slippage in Portugal, could also pressure the country's
rating.

Although positive rating pressure is not likely over the near to
medium term, Moody's considers that the outlook on Portugal's
debt rating could stabilise if the government were to pursue
macroeconomic policies that place its debt on a sustainable
downward trajectory and buoys the economy's growth potential. The
credit would also benefit from continued compliance with the
IMF/EU programme and ongoing enactment of the promised structural
reforms, which would improve market confidence and increase the
likelihood that the Portuguese government will regain access to
the private long-term debt market.

Moody's Investors Service has today downgraded Slovakia's
government bond ratings to A2 from A1. The outlook has been
changed to negative.

The key drivers of today's rating action on Slovakia are:

1.) The uncertainty over the prospects for institutional reform
in the euro area and the weak macroeconomic outlook across the
region, which will continue to weigh on already fragile market
confidence.

3.) The increased downside risks to economic growth due to
weakening external demand.

Moody's has changed the outlook on Slovakia's sovereign rating to
negative to reflect the potential for a further decline in
economic and financing conditions as a result of a deterioration
in the euro area debt crisis.

RATIONALE FOR DOWNGRADE

As indicated in the introduction of this press release, a
contributing factor underlying Moody's one-notch downgrade of
Slovakia's government bond rating is the uncertainty over the
euro area's prospects for institutional reform of its fiscal and
economic framework and over the resources that will be made
available to deal with the crisis. Moreover, Europe's weak
macroeconomic prospects complicate the implementation of domestic
austerity programmes and the structural reforms that are needed
to promote competitiveness. Moody's believes that these factors
will continue to weigh on market confidence, which is likely to
remain fragile, with a high potential for further shocks to
funding conditions. In addition to constraining the
creditworthiness of all European sovereigns, the fragile
financial environment increases Slovakia's susceptibility to
financial and macroeconomic shocks given the concerns identified
below.

The fragile external environment is directly increasing
Slovakia's susceptibility to financial event risk, which is the
second driver informing the one-notch downgrade of the country's
government bond rating. Specifically, the volatile market
conditions are increasing Slovakia's financing costs and its
growing funding risks. At the same time, political event risk has
also been heightened by the recent collapse of the government led
by Prime Minister Iveta Radicova following a confidence vote in
October 2011. Increased susceptibility to financial and political
event risk present considerable challenges to achieving the
government's fiscal consolidation targets and reversing the
recent adverse trend in debt dynamics. Slovakia's general
government debt-to-GDP ratio has climbed from 28% in 2008 to over
44% in 2011, and will not stabilise in 2012-13 as had been
initially expected.

The third factor underlying the downgrade is Slovakia's exposure
to the deteriorating regional macroeconomic environment given the
dependence of the economy on external demand, a key channel for
contagion from the euro area crisis. Subdued activity in the euro
area will continue to negatively affect the export-driven Slovak
economy, constraining its ability to implement its fiscal
consolidation targets, especially in light of the downfall of the
ruling coalition, which had been committed to achieving these
targets. While Moody's forecasts a 1.1% growth in real GDP for
2012, risks remain firmly on the downside as continued
uncertainty hinders business and consumer confidence in Slovakia
and the broader euro area. Weaker revenue collection will hamper
the government's efforts to reduce its deficit going forward,
resulting in a further deterioration of the government's balance
sheet. The potential for further fiscal slippage remains high,
while the willingness of the new Slovak government to take the
steps needed to achieve the revised fiscal targets presents
considerable implementation risks.

WHAT COULD MOVE THE RATING UP/DOWN

Downward pressure on the rating could develop if Slovakia's
economic growth prospects deteriorate significantly, thereby
obstructing fiscal consolidation and leading to a significant
further deterioration in the government's balance sheet. A sharp
intensification of the euro area crisis and further deterioration
of macroeconomic conditions in Europe, leading to material fiscal
and debt slippage in Slovakia, could also pressure the country's
rating. Moody's would view such fiscal slippage negatively as it
would lead to a deterioration of policy credibility and debt
dynamics. This would in turn adversely affect Slovakia's funding
prospects, increase rollover risk and result in a higher cost of
funding for the government.

Moody's would consider changing the negative outlook to stable in
the event of a sustained improvement in investor sentiment across
the euro area, thereby materially reducing the risk of contagion
from the euro area periphery. Similarly, a stabilisation in
Slovakia's debt metrics would reduce negative pressure on the
rating. Although unlikely in the foreseeable future, Moody's
would upgrade the rating in the event of a resumption of
structural improvements, a significant strengthening of the
government's balance sheet and debt ratios relative to the 'A'
category, and resumed convergence of Slovakia's credit metrics
with EU levels.

Moody's Investors Service has today downgraded Slovenia's local-
and foreign-currency government bond ratings to A2 from A1. The
outlook remains negative.

The key drivers of today's rating action on Slovenia are:

1.) The uncertainty over the prospects for institutional reform
in the euro area and the weak macroeconomic outlook across the
region, which will continue to weigh on already fragile market
confidence.

2.) The risk to Slovenia's public finances from potential further
shocks, especially the possible need to provide further support
to the nation's banking system.

3.) The difficulties that Slovenia's small and open economy faces
in view of weak growth among key European trading partners, and
the resulting significant challenge to the government's ability
to achieve its medium-term fiscal consolidation plans.

Moody's is maintaining a negative outlook on Slovenia's sovereign
rating to reflect the potential for a further decline in economic
and financing conditions as a result of a deterioration in the
euro area debt crisis.

RATIONALE FOR DOWNGRADE

As indicated in the introduction of this press release, a
contributing factor underlying Moody's one-notch downgrade of
Slovenia's government bond rating is the uncertainty over the
euro area's prospects for institutional reform of its fiscal and
economic framework and over the resources that will be made
available to deal with the crisis. Moreover, Europe's weak
macroeconomic prospects complicate the implementation of domestic
austerity programmes and the structural reforms that are needed
to promote competitiveness. Moody's believes that these factors
will continue to weigh on market confidence, which is likely to
remain fragile, with a high potential for further shocks to
funding conditions. In addition to constraining the
creditworthiness of all European sovereigns, the fragile
financial environment increases Slovenia's susceptibility to
financial and macroeconomic shocks given the concerns identified
below.

The deteriorating macroeconomic environment is exacerbating a
number of existing and potential pressures on the Slovenian
government's balance sheet, which are weighing on its
creditworthiness and constitute the second driver of Moody's
one-notch downgrade of Slovenia's bond rating. While somewhat
shielded by manageable (but rising) debt and debt servicing
levels, Slovenia's public finances are at risk from potential
further shocks, stemming from a possible further deterioration in
the economic growth outlook in the euro area and globally and the
likely need to provide further support to the country's banks.

In particular, the country's largest banks face asset quality,
capitalisation and funding challenges. In comparison with other
systems in Central and Eastern Europe, Slovenia has a large
banking sector, with total assets equivalent to 136% of GDP.
Asset quality pressure and the euro area debt crisis are weighing
on the sector's solvency and threaten its ability to continue to
access private funding markets. Non-performing loan ratios are
continuing to rise, reflecting concentrations of exposure towards
the highly leveraged corporate sector. Slovenian banks' asset
quality, profitability and funding position remain under
considerable stress, increasing the risk of additional
governmental support being needed, which would further pressure
the sovereign's debt metrics.

The third driver informing Moody's rating decision on Slovenia is
the threat to growth in the country's small and open economy
given the poor growth prospects among Slovenia's principal export
markets in Europe. Moreover, the ongoing significant adjustment
in Slovenia's highly leveraged corporate sector, particularly the
construction sector, and the deleveraging across all sectors of
the economy, are expected to continue to represent a drag on
economic activity for the next year or so. The weak economic
outlook poses a significant challenge to the Slovenian
government's ability to achieve its medium-term fiscal
consolidation plans and may necessitate additional fiscal
measures that could further pressure the sovereign's debt
metrics.

These credit pressures have intensified and become more apparent
in the period since Moody's last rating action in December 2011,
and are contributing to the need to reposition Slovenia's rating
in the middle of the 'A' range.

WHAT COULD MOVE THE RATING UP/DOWN

A further downward adjustment in Slovenia's sovereign rating
could result from (i) a substantial intensification of the risks
and uncertainties for the Slovenian government's balance sheet,
stemming from the potential need for further support to banks; or
(ii) a further marked deterioration in economic growth prospects
due to external shocks stemming from the euro area crisis, which
would in turn lead to the potential failure of the government to
stabilise and reverse the general government debt trajectory.

Moody's would stabilise the outlook on Slovenia's rating in the
event of government progress in implementing economic and fiscal
policies that pave the way for a substantial and sustainable
trend of increasing primary surpluses, and lead to a significant
reversal in the public debt trajectory.

Moody's Investors Service has today downgraded the government
bond rating of the Kingdom of Spain to A3 from A1. The outlook on
the rating is negative.

Concurrently, Moody's has also downgraded the rating of Spain's
Fondo de Reestructuración Ordenada Bancaria (FROB) to A3 with a
negative outlook from A1, in line with the sovereign rating
action, given that FROB's debt is fully and unconditionally
guaranteed by the Kingdom of Spain. Both Spain's and the FROB's
short-term ratings have been downgraded to (P)Prime-2 from
(P)Prime 1.

The key drivers of today's rating action on Spain are:

1.) The uncertainty over the prospects for institutional reform
in the euro area and the weak macroeconomic outlook across the
region, which will continue to weigh on already fragile market
confidence.

2.) The country's challenging fiscal outlook is being exacerbated
by the larger-than-expected fiscal slippage in 2011, mainly on
account of budget overshoots by Spain's regional governments.
Moody's is sceptical that the new government will be able to
achieve the targeted reduction in the general government budget
deficit, leading to a further increase in the rapidly rising
public debt ratio.

3.) The pressures on the Spanish economy, which is close to
entering a renewed recession, will be further increased by the
need for even stronger action to achieve a deficit reduction. A
renewed recession will also negatively affect the profitability
of Spanish banks at a time when they are required to clean up
their balance sheets.

Moody's is maintaining a negative outlook on Spain's sovereign
ratings to reflect the potential for a further decline in
economic and financing conditions as a result of a deterioration
in the euro area debt crisis.

RATIONALE FOR DOWNGRADE

As indicated in the introduction of this press release, a
contributing factor underlying Moody's two-notch downgrade of
Spain's government bond rating is the uncertainty over the euro
area's prospects for institutional reform of its fiscal and
economic framework and over the resources that will be made
available to deal with the crisis. Moreover, Europe's weak
macroeconomic prospects complicate the implementation of domestic
austerity programmes and the structural reforms that are needed
to promote competitiveness. Moody's believes that these factors
will continue to weigh on market confidence, which is likely to
remain fragile. This will in turn mean a high potential for
further shocks to funding conditions, which will affect weaker
sovereigns like Spain first, increasing its susceptibility to
other financial and macroeconomic shocks given the concerns
identified below.

The second driver underpinning the downgrade of Spain's sovereign
rating is Moody's expectation that the country's key credit
metrics will continue to deteriorate. The larger-than-expected
fiscal deviation reported for 2011 (with a general government
deficit of around 8% of GDP vs. a target of 6%) make the
country's fiscal outlook for 2012 even more challenging than
Moody's anticipated at the time of its last rating action on
Spain. Moody's acknowledges that the new government has taken
timely action to compensate for a large part of last year's
fiscal slippage, and has also taken steps to place the regional
governments' finances under closer supervision. However, the
effectiveness of these steps remains to be seen. Overall, the
adjustment required to bring the public finances back onto the
targeted path (a budget deficit target of 4.4% of GDP in 2012) is
unprecedented. According to Moody's estimates, a total fiscal
adjustment of approximately EUR40 billion (3.7% of GDP) will be
needed, compared to a reduction in the deficit of around EUR28
billion in aggregate in 2010 and 2011.

Moody's is therefore sceptical that the target can be achieved
and expects the general government budget deficit to remain
between 5.5% and 6% of GDP. This in turn implies that the public
debt ratio will continue to rise. Under Moody's base-case
assumption, the debt ratio will be around 75% of GDP at the end
of the year, more than double the trough reached in 2007, and
will likely approach the 80% of GDP mark in the coming two years.
One of Spain's key relative credit strengths -- its lower
debt-to-GDP ratio compared to some of its closest peers in Europe
-- is therefore eroding.

The third driver of today's rating action is the weakening
Spanish economy, which is likely to come under even greater
pressure because of the need for stronger action to achieve a
deficit reduction. Spain recorded a contraction in real GDP of
0.3% quarter-on-quarter in Q4 of 2011 and Moody's expects Spain's
GDP to contract by a further 1%-1.5% in 2012, compared to a
forecast of low but positive growth of around 1% just a few
months ago.

A renewed recession will further affect the profitability of
Spanish banks at a time when they are expected to remove impaired
real-estate-related assets from their balance sheets. Moody's
views positively the new government's attempt to force the
banking sector to increase provisioning against problematic
assets related to banks' exposure to the real estate sector,
thereby improving the transparency of banks' balance sheets and
contributing to restoring market confidence. However, Moody's is
doubtful that the government's plan to encourage stronger banks
to merge with weaker ones will be achievable without further
support from the public sector. The rating agency therefore
continues to believe that the contingent risks arising from the
banking sector are higher and more likely to crystallise in the
case of Spain than among many of its peers. Moody's recognises
that the labour market reforms, announced by the government on 10
February, are important steps to increase the flexibility in the
labour market and should help foster faster employment growth
once the economic recovery begins.

The decision to downgrade by two notches is explained by Moody's
view that Spain's credit fundamentals and outlook are difficult
to reconcile with a rating above the lower end of the "single-A"
rating category. Indeed, peers at the top of the single-A
category (like the Czech Republic and South Korea) as well as
those in the middle of the category (like Poland), do not face
Spain's fiscal and growth challenges, nor do they have banking
systems with similar issues.

WHAT COULD MOVE THE RATINGS UP/DOWN

Moody's expects Spain's A3 rating to exhibit some degree of
tolerance to potential downside scenarios that may emerge in
coming quarters, including (i) a further modest deterioration in
the macroeconomic outlook relative to the rating agency's base
case expectation; (ii) a moderate deviation from the government's
current fiscal targets and limited additional cost to the
government from supporting the restructuring of the banking
sector; as well as (iii) occasional political set-backs in the
progress towards agreeing and implementing the necessary reforms
to restore confidence.

However, Moody's rating would not be immune to a further
substantial deterioration in macroeconomic or financial market
conditions, leading to sharp fiscal and debt slippage in Spain,
or to a substantial erosion in Spanish policymakers' commitment
to reform implementation.

The rating outlook could be stabilised at the current level if
the wider euro area situation were to be resolved conclusively.
The rating could be upgraded if and when the economy is placed on
a clear and improving trend and the public debt ratio has
stabilised at sustainable levels.

Moody's changes the outlook on the United Kingdom's Aaa rating to
negative

Moody's Investors Service has today changed the outlook on the
United Kingdom's Aaa government bond rating to negative from
stable.

The key drivers of today's action on the United Kingdom are:

1.) The increased uncertainty regarding the pace of fiscal
consolidation in the UK due to materially weaker growth prospects
over the next few years, with risks skewed to the downside. Any
further abrupt economic or fiscal deterioration would put into
question the government's ability to place the debt burden on a
downward trajectory by fiscal year 2015-16.

2.) Although the UK is outside the euro area, the high risk of
further shocks (economic, financial, or political) within the
currency union are exerting negative pressure on the UK's Aaa
rating given the country's trade and financial links with the
euro area. Overall, Moody's believes that the considerable
uncertainty over the prospects for institutional reform in the
euro area and the region's weak macroeconomic outlook will
continue to weigh on already fragile market confidence across
Europe.

Concurrently, Moody's has today also changed to negative the
outlook on the Aaa debt rating of the Bank of England in line
with the change of outlook on the UK's sovereign rating.

RATIONALE FOR NEGATIVE OUTLOOK

The primary driver underlying Moody's decision to change the
outlook on the UK's Aaa rating to negative is the weaker
macroeconomic environment, which will challenge the government's
efforts to place its debt burden on a downward trajectory over
the coming years. These challenges, reflecting the combined
effect of a commodity price driven hit to real incomes, the
confidence shock from the euro area and a reassessment of the
lasting effects of the financial crisis on potential output, were
already evident in the government's Autumn Statement. The
statement announced that a further two years of austerity
measures would be needed in order for the government to meet its
fiscal mandate of achieving a cyclically adjusted current budget
balance by the end of a rolling five-year time horizon, and to
reach its target of placing net public sector debt on a declining
path by fiscal year 2015-16.

Moody's central expectation is that these objectives will be met,
with a general government gross debt-to-GDP ratio peaking at just
under 95% in 2014 or 2015, before gradually declining thereafter.
However, Moody's expects the UK's debt to peak later, and at a
higher level, than in most other Aaa-rated countries. Moreover,
risks to the rating agency's forecasts are skewed to the
downside. In part, these risks are the by-product of a necessary
fiscal consolidation programme and the ongoing parallel
deleveraging process in both the household and financial sectors.
Moody's also believes that the further cutbacks announced last
autumn indicate that the government has a reduced capacity to
absorb further abrupt economic or fiscal deterioration without
incurring a further slippage in its consolidation timetable.

A combination of a rising medium-term debt trajectory and
lower-than-expected trend economic growth would put into question
the government's ability to retain its Aaa rating. The UK's
outstanding debt places it amongst the most heavily indebted of
its Aaa-rated peers, alongside the United States and France whose
Aaa ratings also carry a negative outlook.

The second and interrelated driver of Moody's decision to change
the UK's rating outlook to negative is the fact that the weaker
environment is also, in part, a by-product of the ongoing crisis
in the euro area. Although the UK is outside the euro area, the
crisis is affecting the UK through three channels: trade, the
financial sector and consumer and investor confidence.

Moody's believes that there is considerable uncertainty over the
euro area's prospects for institutional reform of its fiscal and
economic framework and over the resources that will be made
available to deal with the crisis. Moreover, Europe's weak
macroeconomic outlook complicates the implementation of domestic
austerity programmes and the structural reforms that are needed
to promote competitiveness. Moody's believes that these factors
will continue to weigh on market confidence, which is likely to
remain fragile, with a high potential for further shocks to
funding conditions.

In addition to constraining the creditworthiness of all European
sovereigns, the fragile financial environment increases the UK's
susceptibility to financial and macroeconomic shocks. Any such
shock would pose further risks to the performance of the UK
economy and to the strength of its financial sector, with
inevitable consequences for the government's ability to achieve
fiscal consolidation on schedule. Moreover, while the UK
currently enjoys 'safe haven' status, there is also a growing
risk that the weaker macroeconomic outlook could damage market
confidence in the government's fiscal consolidation programme and
cause funding costs to rise.

RATIONALE FOR CONTINUED Aaa RATING

Although Moody's has some concerns about the UK's macroeconomic
outlook for the next few years, the UK's Aaa sovereign rating
continues to be well supported by a large, diversified and highly
competitive economy, a particularly flexible labour market, and a
banking sector that compares favourably to peers in the euro
area. The economy generally benefits from the significant
structural reforms undertaken in the past. As a result of these
strong structural features, Moody's expects the UK to eventually
return to its trend growth rate of around 2.5%, although the
return to trend growth is expected to be slower than originally
expected, reflecting the nature and depth of the financial
crisis.

The current fiscal consolidation programme remains intact and the
government has demonstrated its willingness and ability to take
action to address shortfalls. The UK has been proactive in
pushing banks to hold more capital and in taking steps to reduce
the probability and impact of the sovereign having to use its own
balance sheet to support British banks. Further, the outstanding
debt stock has important structural features that give the UK
government a very high shock-absorption capacity.

The government is implementing an ambitious fiscal consolidation
programme and so far has been meeting , and even exceeding, its
deficit reduction forecasts. In the Autumn Statement, the Office
for Budget Responsibility (OBR) announced weaker economic growth
forecasts, to which the government responded by announcing
further spending cuts, both over the medium and long term.
Although Moody's sees rising challenges in achieving debt
reduction within the timeframe that has been laid out by the
government -- not least the possible impact of any future
cutbacks on short-term growth -- the rating agency believes that
the UK government's response to negative developments late last
year indicates its commitment to restoring a sustainable debt
position. This suggests that the UK's track record of reversing
increases in debt is likely to continue going forward.

The UK's Aaa rating is also supported by the robust structure of
government debt. The UK has the lowest refinancing risk of all
the large Aaa economies, based on the average maturity of the
UK's debt stock (nearly 14 years), its large domestic investor
base, and the willingness and ability of its central bank to
undertake accommodative monetary policy.

WHAT COULD MOVE THE RATING DOWN

The UK's Aaa rating could potentially be downgraded if Moody's
were to conclude that debt metrics are unlikely to stabilise
within the next 3-4 years, with the deficit, the overall debt
burden and/or debt-financing costs continuing on a rising trend.
This could happen in one of three scenarios, all of which would
imply lower economic and/or government financial strength: (1) a
combination of significantly slower economic growth over a
multi-year time horizon -- perhaps due to persistent
private-sector deleveraging and very weak growth in Europe -- and
reduced political commitment to fiscal consolidation, including
discretionary fiscal loosening or a failure to respond to a
deteriorating fiscal outlook; (2) a sharp rise in
debt-refinancing costs, possibly associated with an inflation
shock or a deterioration in market confidence over a sustained
period; or (3) renewed problems in the banking sector that force
a resumption of official support programmes and spill over into
the real economy, indirectly causing lower growth and larger
budget deficits.

Conversely, the rating outlook could return to stable if the
combination of less adverse macroeconomic conditions, progress
towards containing the euro area crisis and deficit reduction
measures were to ease medium-term uncertainties with regards to
the country's debt trajectory.